- Basic data
- Public finances and the state budget
- Banking system
- Tax System
The government was one of the first in Latin America to implement strict quarantine measures in response to the COVID-19 pandemic to prevent the collapse of the fragile health system. The long and relatively strict lockdown lasting most of 2020 took its toll in the economic downturn. Colombia’s GDP fell by -6.6% in 2020. The country was also hit hard by the drop in the price of oil, which accounts for 53% of Colombia’s exports. Unemployment rose to 16.1%. Check ebizdir for economical facts of Colombia.
In 2021, international institutions predict a growth of 4.4% and the Colombian government even anticipates a growth of over 5%. However, it will largely depend on the success of the vaccination campaign, the management of the public debt, the development of the Venezuelan refugee crisis and the maintenance of fragile social peace.
Colombia is the fourth largest Latin American economy with long-term above-average GDP growth within its region. Structurally, the Colombian economy is still heavily dependent on the export of raw agricultural products, oil and coal. Colombia imports a variety of value-added items that it is unable to produce on its own, from food to machinery and automobiles. In Colombia, approximately half of the working population works in the gray economy.
|GDP growth (%)||2.6||3.3||-6.9||4.4||4.4|
|Export of goods (billion USD)||44.4||42.4||33.1||37.4||41.9|
|Import of goods (billion USD)||49.6||50.8||41.4||46.4||50.1|
|Trade Balance (Billion USD)||-5.1||-8.5||-8.3||-9.0||-8.2|
|Industrial production (% change)||2.9||1.4||-8.0||3.4||3.7|
|OECD export risk||4/7||4/7||4/7||4/7||ON|
Source: EIU, OECD, WEF
Public finance and state budget
|State budget balance (% of GDP)||-5.9|
|Public debt (% of GDP)||74.4|
|Current account balance (billion USD)||-12.0|
|F.O||0 – 39%|
|VAT||basic rate 19%|
Public debt currently represents one of the main macroeconomic risks for the country’s future development. Public debt at the end of 2020 reached 64.9%. It is assumed that the debt could rise to over 70% at the end of 2021. The alarming state of public finances forced the government to prepare a tax reform project, which was submitted to Congress in April 2021.
However, the long-term frustrated and radicalized society rejected the reform and took to the streets. President Duque replaced the finance minister and the government began negotiations to reach a broad social consensus on a new reform project.
S&P cut Colombia’s rating from BBB- to BB+ in the wake of the tax reform debacle, and other rating agencies are expected to follow suit, making it more expensive for the country to borrow on international markets.
The deficit of the current account of the balance of payments amounted to -12 billion USD in 2020, despite the still large volume of remittances regularly sent to Colombia by approximately 4 million Colombian citizens, of which approximately 40% live in Europe (mainly in Spain).
In Colombia, there are over 140 financial institutions such as commercial banks, savings and loan institutions, financial corporations and commercial finance companies. Furthermore, social security insurance companies, exchange offices, so-called sociedades capitalizadoras for the capitalization of savings, insurance and reinsurance companies, investment funds, stock exchanges, etc.
The basic element of the Colombian financial sector is the central bank – Banco de la República (BdR). The central bank controls the money supply through open market operations. Interbank operations are controlled by interbank rates (tasas interbancarias). Colombia has a free floating exchange rate – floating system. A certain rarity is the so-called 4×1000 bank fee. Anyone who has a bank account and the volume of transactions exceeds 11,994,500 COP per month pays a fee of 0.4% of the total volume of transactions.
The most common form of payment for goods from abroad is prepayment. Letters of credit are not used very often when exporting, because the entry of a Colombian bank makes the transaction disproportionately expensive.
The vast majority of banking institutions in Colombia are grouped in the so-called Asobancaria. Its members are national and foreign commercial banks, public and private, including the most important financial corporations and insurance companies. We list the 5 most important banks:
- Bancolombia – This is the largest private bank in the country in terms of capital and assets. At the same time, it is one of the largest banks in America with headquarters in Medellin. It covers about 20% of the banking market in Colombia.
- Banco de Bogotá – the oldest banking institution in Colombia, founded in 1870, with headquarters in Bogotá. It conducts international operations through agreements it has with correspondent banks around the world and their subsidiaries and agencies abroad.
- Davivienda – in addition to Colombia, it has a presence in Panama, Costa Rica, Honduras, El Salvador and the USA. Recently, it has been receiving awards for its level of client service and ease of account management.
- BBVA Colombia – the Colombian branch of a capital-strong international bank based in Spain
The tax system in Colombia is quite complex, confusing and abounds with a whole series of exceptions that are difficult to defend economically for both legal entities and individuals. The corporate tax rate for 2021 is 31% and should be reduced to 30% from 2022. The 20% rate applies to industrial and service companies based in free trade zones.
Personal income tax ranges from 0% to 39%. Half of Colombians operate outside the formal economy and the majority of formally employed people fall into the 0% tax bracket. Currently, only 4% of Colombians pay income tax.
Consumption tax (impuesto al consumo), which is levied on the sale of cars, telecommunications services, food and drink, ranges from 4% to 19%. Financial operations (GMF, gravamen de movimientos financiers) are taxed at 0.4% of each transaction. There is also an industrial and commercial tax, which is required by departments and municipalities from the income of companies operating in their territory. At the regional level, property tax (0.3-3.3%), registration tax (for the registration of contracts from 0.5-1% of the value) and stamp duty of 1% are also collected.
List of main taxes in Colombia:
- income tax = 25%
- justice tax (CREE) = 9%
- VAT = 0% – 5% – 19%
- consumption tax = 4% – 8% – 19%
- tax on banking operations (GMF) = 0.4%,
- industrial and commercial activity tax = 0.2-1.4%
A complete overview of the Colombian tax system is available on the website of the Tax and Customs Administration (DIAN). From In 2016, a bilateral treaty between the Czech Republic and Colombia on the avoidance of double taxation entered into force.
The planned tax reform intended to expand the base of income tax payers and abolish some exemptions from the payment of VAT. However, the government had to withdraw the proposal after negative public reaction. In any case, the unsatisfactory state of public finances will force the government to somehow reform the current inefficient tax system.